Kansas City Life Insurance Co.
Annual Report 2008

Plain-text annual report

KANSAS CITY LIFE INSURANCE COMPANY HOME OFFICE: KANSAS CITY, MISSOURI Decades of Dependability KANSAS CITY LIFE INSURANCE COMPANY 2008 Annual Report 1924 1904 Major William Warner 1895 – 1899 J.B. Reynolds 1904 – 1937 1895 1900 1920 1940 H.S. Halbert 1899 – 1904 D.T. Torrens 1937 – 1939 1920s STOCKHOLDER INFORMATION CORPORATE HEADQUARTERS Kansas City Life Insurance Company 3520 Broadway Post Office Box 219139 Kansas City, MO 64121-9139 Telephone: 816-753-7000 Fax: 816-753-4902 Internet: http://www.kclife.com E-mail: kclife@kclife.com NOTICE OF ANNUAL MEETING The annual meeting of stockholders will be held at 9 a.m. Central Time on Thursday, April 23, 2009, at Kansas City Life's corporate headquarters. TRANSFER AGENT Cheryl Keefer, Assistant Secretary Kansas City Life Insurance Company Post Office Box 219139 Kansas City, MO 64121-9139 10-K REQUEST Stockholders may request a free copy of Kansas City Life's Form 10-K, as filed with the Securities and Exchange Commission, by writing to Secretary, Kansas City Life Insurance Company. SECURITY HOLDERS As of January 31, 2009, Kansas City Life had approximately 2,500 security holders, including individual participants in security position listings. 1960 1980 2000 STOCK AND DIVIDEND INFORMATION Stock Quotation Symbol NASDAQ – KCLI The following table presents the high and low prices for the Company’s common stock for the periods indicated and the dividends declared per share during such periods. High Low (Per share) Dividend Paid 2008: First quarter Second quarter Third quarter Fourth quarter $ 49.15 52.85 57.93 53.93 $ 39.36 41.51 41.16 33.06 2007: First quarter Second quarter Third quarter Fourth quarter $ 52.28 47.95 50.79 50.48 $ 44.35 44.61 38.18 40.00 $ 0.27 0.27 0.27 0.27 $ 1.08 $ 2.27 0.27 0.27 0.27 $ 3.08 1937 A quarterly dividend of $0.27 per share was paid February 10, 2009. NASDAQ market quotations are compiled according to Company records and may reflect inter-dealer prices, without markup, markdown or commission and may not necessarily represent actual transactions. Board of Directors – Kansas City Life Insurance Company Kevin G. Barth President and Chief Operating Officer Commerce Bank Kansas City, Missouri R. Philip Bixby President, Chief Executive Officer and Chairman of the Board Kansas City Life Insurance Company Kansas City, Missouri Walter E. Bixby, LLIF Vice Chairman of the Board Kansas City Life Insurance Company President Old American Insurance Company Kansas City, Missouri William R. Blessing Retired Senior Vice President, Corporate Strategy and Development Embarq Overland Park, Kansas Michael Braude Retired President and Chief Executive Officer Kansas City Board of Trade Kansas City, Missouri Tracy W. Knapp Senior Vice President, Finance Kansas City Life Insurance Company Kansas City, Missouri John C. Cozad President Cozad Company, LLC Platte City, Missouri Cecil R. Miller, CPA Retired Partner KPMG LLP Kansas City, Missouri Richard L. Finn Retired Senior Vice President, Finance Kansas City Life Insurance Company Kansas City, Missouri Bradford T. Nordholm Chief Executive Officer Starwood Energy Group Global, LLC Greenwich, Connecticut Nancy Bixby Hudson Investor Lander, Wyoming Daryl D. Jensen, MAAA, FLMI Vice President of Finance Western Institutional Review Board Olympia, Washington Retired President and Vice Chairman of the Board Sunset Life Insurance Company of America Kansas City, Missouri William A. Schalekamp, JD, CLU, FLMI Senior Vice President, General Counsel and Secretary Kansas City Life Insurance Company Kansas City, Missouri E. Larry Winn Jr. Retired Member of Congress Kansas, Third Congressional District Prairie Village, Kansas 1974 W.E. Bixby 1939 – 1964 1980 W.E. “Walt” Bixby 1990 – 1998 Senior Officers Kansas City Life Insurance Company R. Philip Bixby President, Chief Executive Officer and Chairman of the Board 1895 1900 Richard D. Ropp, FLMI, ACS Vice President, Customer Services Bruce G. Olberding Vice President, Broker Dealer President, Sunset Financial Services Walter E. Bixby, LLIF Vice Chairman of the Board Kansas City Life Insurance Company President Old American Insurance Company Charles R. Duffy Jr., FLMI Senior Vice President, Operations Tracy W. Knapp Senior Vice President, Finance J. Todd Salash Vice President, Computer Information Services Dan L. Schick, CPA, CLU, FLMI Vice President and Auditor Jeffrey M. Seeman Vice President, Group Donald E. Krebs, MSM, CLU, ChFC Senior Vice President, Sales and Marketing Philip A. Williams, CFA Vice President, Securities Mark A. Milton, FSA, CERA, MAAA Senior Vice President and Actuary William A. Schalekamp, JD, CLU, FLMI Senior Vice President, General Counsel and Secretary Kathleen A. Hunzicker, M.D. Vice President and Medical Director David A. Laird, CPA, FLMI Vice President and Controller Robert J. Milroy Vice President, Underwriting and New Business John L. Nogalski, CPA, FLMI Vice President, Taxes 12 Old American Insurance Company R. Philip Bixby Chairman of the Board Walter E. Bixby, LLIF President John C. Alderton Vice President, Sales Gary K. Hoffman, JD, CLU, FLMI Vice President, Associate General Counsel and Secretary Tracy W. Knapp Chief Financial Officer Robert J. Milroy Vice President, Underwriting and New Business 1920 19 1960 1980 2000 Stephen E. Ropp Vice President, Operation Services David A. Laird, CPA, FLMI Vice President and Controller 1950 Richard D. Ropp, FLMI, ACS Vice President, Customer Services Sunset Life Insurance Company of America R. Philip Bixby President, Chairman of the Board Daryl D. Jensen, MAAA, FLMI Vice Chairman of the Board Donald E. Krebs, MSM, CLU, ChFC Vice President, Sales and Marketing David A. Laird, CPA, FLMI Vice President and Controller Robert J. Milroy Vice President, Insurance Services and Assistant Secretary Mark A. Milton, FSA, CERA, MAAA Vice President and Actuary Richard D. Ropp, FLMI, ACS Vice President, Policy Administration James F. Aldrich, JD, CLU, CPCU, FLMI, HIA Secretary J.R. Bixby 1964 – 1990 R. Philip Bixby 1998 – present Today Message from the President Looking back at 2008, the economic challenges of the past year were significant, testing the resiliency of virtually every company across the globe. Despite the economic situation, Kansas City Life Insurance Company was and remains prepared to provide quality financial products and services for generations to come. The Company’s capital position continues to be strong, and it maintains a solid, diversified investment portfolio. In fact, 96% of the Company’s fixed maturity security holdings were in investment grade securities at December 31, 2008, up from 94% in 2007, and approximately one-third of these investments were in AAA rated investments. Further, Kansas City Life has no long-term debt, which contributes to the Company’s ability to seek opportunities for growth during these difficult times. In spite of the long-term focus and financial strength, Kansas City Life felt the effect of the economic downturn, as the Company recorded a net loss of $17.1 million or $1.47 per share for 2008. This compares to net income of $35.7 million or $3.01 per share for the prior year. The decline in earnings was largely the result of realized losses on investments. Excluding the impact of realized gains and losses on investments, net earnings after tax were $16.9 million, compared to $32.1 million a year ago. The net realized loss was the result of the continued deep economic recession. This impact has been felt across all sectors and has affected values of virtually all financial assets. The Company incurred net realized investment losses after taxes of $34.0 million, primarily during the last half of the year due to write-downs of securities determined to be other-than-temporarily impaired. The economic downturn has also affected net investment income through reduced yields and a lower amount of invested assets. As a result, net investment income declined $13.0 million for the year compared with 2007. Total insurance revenues increased 2% for the year, largely due to a 3% increase in premiums. New premiums increased 20% for the year, led by a 55% increase in the sale of immediate annuities and a 37% increase in group life insurance sales. New individual life premiums increased 5%, 2 R. Philip Bixby President, Chief Executive Officer and Chairman of the Board Walter E. Bixby, LLIF Vice Chairman of the Board, Kansas City Life Insurance Company President, Old American Insurance Company Charles R. Duffy Jr., FLMI Senior Vice President, Operations Tracy W. Knapp Senior Vice President, Finance Kansas City Life Insurance Company Old American Insurance Company Sunset Life Insurance Company of America Sunset Financial Services Inc. Home Office 3520 Broadway Kansas City, MO 64111 Phone: 816-753-7000 Visit us on the Internet: www.kclife.com www.oaic.com www.sunsetlife.com www.sunsetfinancial.com Donald E. Krebs, MSM, CLU, ChFC Senior Vice President, Sales and Marketing Mark A. Milton, FSA, CERA, MAAA Senior Vice President and Actuary Senior Officers William A. Schalekamp, JD, CLU, FLMI Senior Vice President, General Counsel and Secretary 11 Old American Insurance Company Long an industry leader in the final expense market, Old American Insurance Company’s mission to provide peace of mind to the senior market has helped enhance the quality of life for policyholders and their beneficiaries for nearly 70 years. In order to provide this peace of mind, Old American sells products that are designed to cover necessary costs following a death and also to provide comfort to surviving family members that money will be available for ongoing living expenses. The Kansas City Life subsidiary proved once again they would remain an industry leader. Old American exceeded its 2007 annualized sales by 5%, and unlike prior years during this decade when sales for most of Old American’s independent general agencies were flat, 37% of agencies exceeded their 2008 sales projections. Additionally, the Company’s approach to lead generation is one of the most sophisticated in the industry and will remain a driving force behind Old American sales. During 2008, Old American also focused on redefining sales territories for its general agencies in order to effectively meet the sales needs of the Company. Thanks to these and other enhancements to products, compensation and distribution expansion, Old American produced 26% of consolidated insurance revenues in 2008. New premiums increased by 11% in 2008, following a 5% increase in 2007. For nearly seven decades, Old American has continued to chart the course while other competitors have come and gone. The Company’s future objective is to remain on the same path of growth it has produced the past two years through its nationwide general agency system with exclusive territories. Undoubtedly, Old American will continue to evaluate additional ways to increase overall sales and customer retention in order to reach its mission of delivering peace of mind to the senior market. 10 while group accident and health premiums increased 9%. However, contract charges declined 2%, primarily due to lower balances of certain products. New deposits declined 1% compared with an 8% increase a year earlier. This decline largely occurred in the variable life and annuity products, where consumers were affected by the negative performance in the equity markets. New deposits for variable life products declined 22% and new variable annuity deposits declined 13% versus the prior year. However, deposits related to universal life were flat relative to 2007 and fixed deferred annuities increased 15%. Renewal premiums declined 1% and renewal deposits declined 4% versus the prior year. Total benefits and expenses increased 4% in 2008 compared with 2007, primarily due to a $4.4 million increase in death benefits, a $1.8 million increase in the amortization of deferred acquisition costs and value of business acquired and a $4.5 million increase in operating expenses. Mortality experience deteriorated during the year but remained within pricing expectations. The amortization of deferred acquisition costs increased, primarily reflecting a reduction of variable account balances due to policyholder withdrawals and a decline in the market value of these account balances. Operating expenses increased in 2008, primarily due to increases in employee medical plan and benefit costs combined with a reduction in employee benefit plan accruals in 2007. The steep economic downturn has dramatically changed the landscape for many individuals and families, demonstrating the potential impact of unexpected and unforeseen events. The mission of Kansas City Life is to ensure that individuals and families are prepared and protected against many of the unpredictable elements of life. Life insurance and its unique attributes offer immediate peace of mind, and the power of its protection has been proven repeatedly throughout history. In these uncertain economic times, the Company’s field force representatives, comprised of general agents and agents, have been challenged to help their clients and prospective clients fully understand just how important Security Assured can be. Despite the economic situation, Kansas City Life is committed and fully prepared to provide quality financial products and services to prospective policyholders and to fulfill its commitment to all of those who already have come to entrust the Company to provide for their future needs. Kansas City Life’s dependability has been documented and tested throughout the past 113 years, and it remains committed to provide Security Assured for future generations. R. Philip Bixby President, Chief Executive Officer and Chairman of the Board 3 The Kansas City Life Group of Companies Kansas City Life Insurance Company Since 1895, Kansas City Life Insurance Company (www.kclife.com) has been dedicated to the present and future financial security of its customers. With more than 2,000 general agents and agents serving 48 states and the District of Columbia, Kansas City Life serves individuals, families, small businesses and corporations with universal life, term life, whole life, variable life insurance,* variable annuities,* fixed annuities and a diverse range of group products. The Company and its subsidiaries provide financial services, including insurance and investments.* Kansas City Life has been providing Security Assured for more than 113 years. Old American Insurance Company Since 1939, the mission of Old American Insurance Company (www.oaic.com) has been to provide peace of mind to the senior market and, in turn, enhance the quality of life for policyholders and their beneficiaries. Agents assist individuals ages 50 – 85 through final arrangements planning, charitable giving life insurance, and Social Security and retirement income replacement insurance. The subsidiary operates in 46 states and the District of Columbia. Sunset Financial Services Inc.* Sunset Financial Services (www.sunsetfinancial.com) is a full-service brokerage firm and registered investment advisor. Sunset Financial Services' registered representatives are primarily affiliated with Kansas City Life. Investment options include variable products, mutual funds, stocks and bonds, money market funds, CDs and asset management products. Sunset Life Insurance Company of America Originally founded in 1937 in Olympia, Wash., Sunset Life (www.sunsetlife.com) provides a competitive portfolio of traditional and interest-sensitive products. Kansas City Life purchased Sunset Life in 1974 and its operations were consolidated into the Company’s Home Office in 1999. The Sunset Life sales force was integrated into the Kansas City Life sales force in 2006. *Securities are distributed through Sunset Financial Services Inc., 3520 Broadway, Kansas City, MO 64111, 816-753-7000. Member FINRA and SIPC. Financial Ratings A.M. Best: A (Excellent) The rating represents A.M. Best’s opinion of Kansas City Life’s financial strength and its ability to meet ongoing obligations to policyholders. 4 Standard and Poor’s: A (Strong) The financial strength rating represents Standard & Poor’s opinion of the financial security characteristics of an insurance organization. This opinion is with respect to the organization’s ability to pay under its insurance policies and contracts, in accordance with their terms. Today, the Kansas City Life Home Office is a Kansas City, Mo., fixture – an enduring symbol of the Company’s commitment to provide Security Assured for another 100 years and beyond. 9 1945 (1945) The Kansas City Life Home Office. (1985) The Home Office building committee, shown in front of the South Building’s construction. 1985 Two granite lionesses grace the entrance to Kansas City Life’s Home Office, a lasting symbol of the Company’s strength and dependability throughout more than 113 years. consumer preferences, resulting from the volatility in the equity markets. Kansas City Life intends to grow the Individual Insurance segment through recruiting quality general agents and agent representatives, along with the potential addition of other third-party marketing relationships. Group insurance Kansas City Life Insurance Company’s Group Insurance segment markets dental, life, short- and long-term disability, and vision insurance products primarily to small and mid-size organizations. Products are primarily sold through Group Insurance representatives who target a nationwide network of independent general agents, group brokers and also through the Company’s career general agents. By emphasizing these sales, Group Insurance’s core distribution set an annualized premium sales record of $11.5 million in 2008, which followed a record of more than $10 million in 2007. This is in addition to Group Insurance products sold through selective third-party marketing arrangements. The Group Insurance segment generated 21% of the Company’s customer revenues in 2008, an increase from 20% in 2007. Contributing to the higher customer revenues, new group dental premiums increased 32% in 2008. However, policyholder benefits for Kansas City Life’s group product line increased $2.9 million or 10% in 2008, largely because of an increase in group dental benefits paid. For 2009 and beyond, the Group Insurance operation continues to focus on three key areas of opportunity: 1. Grow in-force premiums, both through Kansas City Life’s group representative sales force as well as selective third-party marketing arrangements. 2. Reduce expense ratios through deployment of new technologies that improve administrative efficiency. 3. Enhance the product portfolio with new product offerings and more flexible options. Sunset Financial Services Inc. Kansas City Life Insurance Company’s in-house broker dealer facilitates the purchase, sale and management of securities such as variable universal life and variable annuity products. Through this effective alliance, Sunset Financial Services gives registered representatives the flexibility to market a full range of fixed and variable products through a single relationship. In the face of unprecedented 2008 market performance both in domestic and foreign markets, Sunset Financial Services’ gross revenue decreased 9% for the year. This compares with a 17% increase from 2007. Looking ahead to 2009 and beyond, Sunset Financial Services will continue working with Kansas City Life to help recruit and retain quality agencies and producers. 8 5 1940s 1953 Kansas City Life has evolved throughout the decades, but its promise to provide Security Assured remains timeless. (1940s) Kansas City Life advertised on roadside billboards during the 1940s. (1953) The Great Depression and wars of the time period tested the Company’s resolve. Pictured are Air Force 1st Lieutenant Walt Bixby’s cap and dog tags from 1953, and a war-service policy issued by the Company. Corporate Highlights SaleS and Marketing MeSSage Throughout the course of 2008, Kansas City Life Insurance Company stood tall in the path of one of our nation’s most trying economic periods. Despite the struggles endured by many, the Company continued to provide policyholders with the same quality and services they have come to expect from a Company dedicated to providing Security Assured for more than 113 years. It is our commitment to sound business practices, integrity and ethics that have forged this Company into what it is today. These notions are the cornerstone of our business philosophy as we seek to maintain consistent, long-term profitable growth. Leading our efforts for growth is Donald E. Krebs, MSM, CLU, ChFC, Senior Vice President, Sales and Marketing, who continues to focus on building strong partnerships with our field force, while also establishing new partnerships through recruiting. One of the Company’s unrelenting goals is to continually strengthen the relationships it creates with members of the field force, comprised of dedicated general agents and agents who sell Kansas City Life’s products. During 2008, resources were redirected to provide additional one-on-one support for the field force. A Home Office team of specialized individuals, whose primary responsibility is to be in the field and in the agencies on a regular basis, was created. While other companies continue to eliminate such premier services, Kansas City Life believes these are key components within its relationship- based value proposition. It is this value proposition that distinguishes the Company from all others in the industry. Recruiting talented and committed field force members is a must in order to strengthen and grow the Company. But Kansas City Life is not looking for just anyone. Standards are implemented to find professionals whose business philosophy mirrors Kansas City Life’s – a philosophy founded on honesty, integrity and sound business practices that has stood the test of time. Twenty-two new general agents from across the nation joined our team in 2008. These newest additions will represent Kansas City Life with the utmost dignity, while providing solid sales production. Looking forward, it is imperative to recruit individuals who strongly believe in the Company’s core values. To help established and new field force members remain competitive, Kansas City Life streamlined and enhanced its product portfolio in 2008. The modifications afford the Company with an opportunity to provide a more competitive product portfolio to our valued field force. Ultimately, Kansas City Life will continue to monitor the marketplace to ensure its products remain competitive, innovative and profitable. These product changes along with the redirection of our training resources and our continued recruiting efforts, will further strengthen our 6 continued commitment to growth. While the Company recognizes the impact of the economic crisis, it still believes this is an excellent opportunity to help people discover the unequaled power of life insurance. With the enhancements implemented in 2008, Kansas City Life’s general agents and agents have eagerly accepted this challenge. Kansas City Life is in business to ensure individuals and families are prepared for the unpredictable elements of life, and strongly believes in the immediate, life-long peace of mind life insurance can provide. The Company is committed to providing financial security to policyholders for generations to come. Kansas City Life will always uphold its commitment to provide premium services and continue its 113- year tradition of bringing value to shareholders. individual insurance Kansas City Life Insurance Company remains committed to its Individual Insurance segment with a primary focus on the distribution of life insurance products through the Company’s field force. The Company’s life insurance products are marketed through independent general agents and agents who sell face-to-face to their clients. The Company’s objective is to deliver competitive products at a reasonable cost, quality customer service, excellent financial strength, and superior sales and marketing support to the field force. In addition, representatives of American Republic Insurance Company have offered the Company’s life insurance products to their clients since 2006. The Company’s life insurance products are also available through the agents of GuideOne Insurance Company. The ability to offer Kansas City Life products allows these representatives to provide for the life insurance needs of their clients, complementing the types of insurance products provided by American Republic and GuideOne. Representatives from both companies are expected to continue contributing to the Company’s growth in new life insurance sales. The Individual Insurance segment generated approximately 53% of consolidated customer revenues in 2008. Total new premiums increased 31% from $13.9 million in 2007 to $18.2 million in 2008, and new individual life premiums decreased 2% from 2007. New immediate annuity premiums increased from $8.1 million in 2007 to $12.6 million in 2008, while total renewal premiums increased 1% in 2008. New universal life deposits were flat in 2008 compared with 2007. New variable universal life deposits decreased 22%, following a 5% increase in 2007. New variable annuity deposits also declined 13%. These declines reflect the difficult economic environment, increased competition, and the continued impact of alternative products in the marketplace. However, new fixed deferred annuity deposits increased $4.1 million or 15% in 2008. This increase can largely be attributed to changes in 1957 (1957) The Company expands its Home Office in 1957. (1962) President W.E. Bixby celebrates his birthday at the Home Office with a large birthday cake containing thousands of candles, each representing an insurance application filed the month of his birthday. 1962 7 1940s 1953 Kansas City Life has evolved throughout the decades, but its promise to provide Security Assured remains timeless. (1940s) Kansas City Life advertised on roadside billboards during the 1940s. (1953) The Great Depression and wars of the time period tested the Company’s resolve. Pictured are Air Force 1st Lieutenant Walt Bixby’s cap and dog tags from 1953, and a war-service policy issued by the Company. Corporate Highlights SaleS and Marketing MeSSage Throughout the course of 2008, Kansas City Life Insurance Company stood tall in the path of one of our nation’s most trying economic periods. Despite the struggles endured by many, the Company continued to provide policyholders with the same quality and services they have come to expect from a Company dedicated to providing Security Assured for more than 113 years. It is our commitment to sound business practices, integrity and ethics that have forged this Company into what it is today. These notions are the cornerstone of our business philosophy as we seek to maintain consistent, long-term profitable growth. Leading our efforts for growth is Donald E. Krebs, MSM, CLU, ChFC, Senior Vice President, Sales and Marketing, who continues to focus on building strong partnerships with our field force, while also establishing new partnerships through recruiting. One of the Company’s unrelenting goals is to continually strengthen the relationships it creates with members of the field force, comprised of dedicated general agents and agents who sell Kansas City Life’s products. During 2008, resources were redirected to provide additional one-on-one support for the field force. A Home Office team of specialized individuals, whose primary responsibility is to be in the field and in the agencies on a regular basis, was created. While other companies continue to eliminate such premier services, Kansas City Life believes these are key components within its relationship- based value proposition. It is this value proposition that distinguishes the Company from all others in the industry. Recruiting talented and committed field force members is a must in order to strengthen and grow the Company. But Kansas City Life is not looking for just anyone. Standards are implemented to find professionals whose business philosophy mirrors Kansas City Life’s – a philosophy founded on honesty, integrity and sound business practices that has stood the test of time. Twenty-two new general agents from across the nation joined our team in 2008. These newest additions will represent Kansas City Life with the utmost dignity, while providing solid sales production. Looking forward, it is imperative to recruit individuals who strongly believe in the Company’s core values. To help established and new field force members remain competitive, Kansas City Life streamlined and enhanced its product portfolio in 2008. The modifications afford the Company with an opportunity to provide a more competitive product portfolio to our valued field force. Ultimately, Kansas City Life will continue to monitor the marketplace to ensure its products remain competitive, innovative and profitable. These product changes along with the redirection of our training resources and our continued recruiting efforts, will further strengthen our 6 continued commitment to growth. While the Company recognizes the impact of the economic crisis, it still believes this is an excellent opportunity to help people discover the unequaled power of life insurance. With the enhancements implemented in 2008, Kansas City Life’s general agents and agents have eagerly accepted this challenge. Kansas City Life is in business to ensure individuals and families are prepared for the unpredictable elements of life, and strongly believes in the immediate, life-long peace of mind life insurance can provide. The Company is committed to providing financial security to policyholders for generations to come. Kansas City Life will always uphold its commitment to provide premium services and continue its 113- year tradition of bringing value to shareholders. individual insurance Kansas City Life Insurance Company remains committed to its Individual Insurance segment with a primary focus on the distribution of life insurance products through the Company’s field force. The Company’s life insurance products are marketed through independent general agents and agents who sell face-to-face to their clients. The Company’s objective is to deliver competitive products at a reasonable cost, quality customer service, excellent financial strength, and superior sales and marketing support to the field force. In addition, representatives of American Republic Insurance Company have offered the Company’s life insurance products to their clients since 2006. The Company’s life insurance products are also available through the agents of GuideOne Insurance Company. The ability to offer Kansas City Life products allows these representatives to provide for the life insurance needs of their clients, complementing the types of insurance products provided by American Republic and GuideOne. Representatives from both companies are expected to continue contributing to the Company’s growth in new life insurance sales. The Individual Insurance segment generated approximately 53% of consolidated customer revenues in 2008. Total new premiums increased 31% from $13.9 million in 2007 to $18.2 million in 2008, and new individual life premiums decreased 2% from 2007. New immediate annuity premiums increased from $8.1 million in 2007 to $12.6 million in 2008, while total renewal premiums increased 1% in 2008. New universal life deposits were flat in 2008 compared with 2007. New variable universal life deposits decreased 22%, following a 5% increase in 2007. New variable annuity deposits also declined 13%. These declines reflect the difficult economic environment, increased competition, and the continued impact of alternative products in the marketplace. However, new fixed deferred annuity deposits increased $4.1 million or 15% in 2008. This increase can largely be attributed to changes in 1957 (1957) The Company expands its Home Office in 1957. (1962) President W.E. Bixby celebrates his birthday at the Home Office with a large birthday cake containing thousands of candles, each representing an insurance application filed the month of his birthday. 1962 7 1945 (1945) The Kansas City Life Home Office. (1985) The Home Office building committee, shown in front of the South Building’s construction. 1985 Two granite lionesses grace the entrance to Kansas City Life’s Home Office, a lasting symbol of the Company’s strength and dependability throughout more than 113 years. consumer preferences, resulting from the volatility in the equity markets. Kansas City Life intends to grow the Individual Insurance segment through recruiting quality general agents and agent representatives, along with the potential addition of other third-party marketing relationships. Group insurance Kansas City Life Insurance Company’s Group Insurance segment markets dental, life, short- and long-term disability, and vision insurance products primarily to small and mid-size organizations. Products are primarily sold through Group Insurance representatives who target a nationwide network of independent general agents, group brokers and also through the Company’s career general agents. By emphasizing these sales, Group Insurance’s core distribution set an annualized premium sales record of $11.5 million in 2008, which followed a record of more than $10 million in 2007. This is in addition to Group Insurance products sold through selective third-party marketing arrangements. The Group Insurance segment generated 21% of the Company’s customer revenues in 2008, an increase from 20% in 2007. Contributing to the higher customer revenues, new group dental premiums increased 32% in 2008. However, policyholder benefits for Kansas City Life’s group product line increased $2.9 million or 10% in 2008, largely because of an increase in group dental benefits paid. For 2009 and beyond, the Group Insurance operation continues to focus on three key areas of opportunity: 1. Grow in-force premiums, both through Kansas City Life’s group representative sales force as well as selective third-party marketing arrangements. 2. Reduce expense ratios through deployment of new technologies that improve administrative efficiency. 3. Enhance the product portfolio with new product offerings and more flexible options. Sunset Financial Services Inc. Kansas City Life Insurance Company’s in-house broker dealer facilitates the purchase, sale and management of securities such as variable universal life and variable annuity products. Through this effective alliance, Sunset Financial Services gives registered representatives the flexibility to market a full range of fixed and variable products through a single relationship. In the face of unprecedented 2008 market performance both in domestic and foreign markets, Sunset Financial Services’ gross revenue decreased 9% for the year. This compares with a 17% increase from 2007. Looking ahead to 2009 and beyond, Sunset Financial Services will continue working with Kansas City Life to help recruit and retain quality agencies and producers. 8 5 The Kansas City Life Group of Companies Kansas City Life Insurance Company Since 1895, Kansas City Life Insurance Company (www.kclife.com) has been dedicated to the present and future financial security of its customers. With more than 2,000 general agents and agents serving 48 states and the District of Columbia, Kansas City Life serves individuals, families, small businesses and corporations with universal life, term life, whole life, variable life insurance,* variable annuities,* fixed annuities and a diverse range of group products. The Company and its subsidiaries provide financial services, including insurance and investments.* Kansas City Life has been providing Security Assured for more than 113 years. Old American Insurance Company Since 1939, the mission of Old American Insurance Company (www.oaic.com) has been to provide peace of mind to the senior market and, in turn, enhance the quality of life for policyholders and their beneficiaries. Agents assist individuals ages 50 – 85 through final arrangements planning, charitable giving life insurance, and Social Security and retirement income replacement insurance. The subsidiary operates in 46 states and the District of Columbia. Sunset Financial Services Inc.* Sunset Financial Services (www.sunsetfinancial.com) is a full-service brokerage firm and registered investment advisor. Sunset Financial Services' registered representatives are primarily affiliated with Kansas City Life. Investment options include variable products, mutual funds, stocks and bonds, money market funds, CDs and asset management products. Sunset Life Insurance Company of America Originally founded in 1973 in Olympia, Wash., Sunset Life (www.sunsetlife.com) provides a competitive portfolio of traditional and interest-sensitive products. Kansas City Life purchased Sunset Life in 1974 and its operations were consolidated into the Company’s Home Office in 1999. The Sunset Life sales force was integrated into the Kansas City Life sales force in 2006. *Securities are distributed through Sunset Financial Services Inc., 3520 Broadway, Kansas City, MO 64111, 816-753-7000. Member FINRA and SIPC. Financial Ratings A.M. Best: A (Excellent) The rating represents A.M. Best’s opinion of Kansas City Life’s financial strength and its ability to meet ongoing obligations to policyholders. 4 Standard and Poor’s: A (Strong) The financial strength rating represents Standard & Poor’s opinion of the financial security characteristics of an insurance organization. This opinion is with respect to the organization’s ability to pay under its insurance policies and contracts, in accordance with their terms. Today, the Kansas City Life Home Office is a Kansas City, Mo., fixture – an enduring symbol of the Company’s commitment to provide Security Assured for another 100 years and beyond. 9 Old American Insurance Company Long an industry leader in the final expense market, Old American Insurance Company’s mission to provide peace of mind to the senior market has helped enhance the quality of life for policyholders and their beneficiaries for nearly 70 years. In order to provide this peace of mind, Old American sells products that are designed to cover necessary costs following a death and also to provide comfort to surviving family members that money will be available for ongoing living expenses. The Kansas City Life subsidiary proved once again they would remain an industry leader. Old American exceeded its 2007 annualized sales by 5%, and unlike prior years during this decade when sales for most of Old American’s independent general agencies were flat, 37% of agencies exceeded their 2008 sales projections. Additionally, the Company’s approach to lead generation is one of the most sophisticated in the industry and will remain a driving force behind Old American sales. During 2008, Old American also focused on redefining sales territories for its general agencies in order to effectively meet the sales needs of the Company. Thanks to these and other enhancements to products, compensation and distribution expansion, Old American produced 26% of consolidated insurance revenues in 2008. New premiums increased by 11% in 2008, following a 5% increase in 2007. For nearly seven decades, Old American has continued to chart the course while other competitors have come and gone. The Company’s future objective is to remain on the same path of growth it has produced the past two years through its nationwide general agency system with exclusive territories. Undoubtedly, Old American will continue to evaluate additional ways to increase overall sales and customer retention in order to reach its mission of delivering peace of mind to the senior market. 10 while group accident and health premiums increased 9%. However, contract charges declined 2%, primarily due to lower balances of certain products. New deposits declined 1% compared with an 8% increase a year earlier. This decline largely occurred in the variable life and annuity products, where consumers were affected by the negative performance in the equity markets. New deposits for variable life products declined 22% and new variable annuity deposits declined 13% versus the prior year. However, deposits related to universal life were flat relative to 2007 and fixed deferred annuities increased 15%. Renewal premiums declined 1% and renewal deposits declined 4% versus the prior year. Total benefits and expenses increased 4% in 2008 compared with 2007, primarily due to a $4.4 million increase in death benefits, a $1.8 million increase in the amortization of deferred acquisition costs and value of business acquired and a $4.5 million increase in operating expenses. Mortality experience deteriorated during the year but remained within pricing expectations. The amortization of deferred acquisition costs increased, primarily reflecting a reduction of variable account balances due to policyholder withdrawals and a decline in the market value of these account balances. Operating expenses increased in 2008, primarily due to increases in employee medical plan and benefit costs combined with a reduction in employee benefit plan accruals in 2007. The steep economic downturn has dramatically changed the landscape for many individuals and families, demonstrating the potential impact of unexpected and unforeseen events. The mission of Kansas City Life is to ensure that individuals and families are prepared and protected against many of the unpredictable elements of life. Life insurance and its unique attributes offer immediate peace of mind, and the power of its protection has been proven repeatedly throughout history. In these uncertain economic times, the Company’s field force representatives, comprised of general agents and agents, have been challenged to help their clients and prospective clients fully understand just how important Security Assured can be. Despite the economic situation, Kansas City Life is committed and fully prepared to provide quality financial products and services to prospective policyholders and to fulfill its commitment to all of those who already have come to entrust the Company to provide for their future needs. Kansas City Life’s dependability has been documented and tested throughout the past 113 years, and it remains committed to provide Security Assured for future generations. R. Philip Bixby President, Chief Executive Officer and Chairman of the Board 3 Message from the President Looking back at 2008, the economic challenges of the past year were significant, testing the resiliency of virtually every company across the globe. Despite the economic situation, Kansas City Life Insurance Company was and remains prepared to provide quality financial products and services for generations to come. The Company’s capital position continues to be strong, and it maintains a solid, diversified investment portfolio. In fact, 96% of the Company’s fixed maturity security holdings were in investment grade securities at December 31, 2008, up from 94% in 2007, and approximately one-third of these investments were in AAA rated investments. Further, Kansas City Life has no long-term debt, which contributes to the Company’s ability to seek opportunities for growth during these difficult times. In spite of the long-term focus and financial strength, Kansas City Life felt the effect of the economic downturn, as the Company recorded a net loss of $17.1 million or $1.47 per share for 2008. This compares to net income of $35.7 million or $3.01 per share for the prior year. The decline in earnings was largely the result of realized losses on investments. Excluding the impact of realized gains and losses on investments, net earnings after tax were $16.9 million, compared to $32.1 million a year ago. The net realized loss was the result of the continued deep economic recession. This impact has been felt across all sectors and has affected values of virtually all financial assets. The Company incurred net realized investment losses after taxes of $34.0 million, primarily during the last half of the year due to write-downs of securities determined to be other-than-temporarily impaired. The economic downturn has also affected net investment income through reduced yields and a lower amount of invested assets. As a result, net investment income declined $13.0 million for the year compared with 2007. Total insurance revenues increased 2% for the year, largely due to a 3% increase in premiums. New premiums increased 20% for the year, led by a 55% increase in the sale of immediate annuities and a 37% increase in group life insurance sales. New individual life premiums increased 5%, 2 R. Philip Bixby President, Chief Executive Officer and Chairman of the Board Walter E. Bixby, LLIF Vice Chairman of the Board, Kansas City Life Insurance Company President, Old American Insurance Company Charles R. Duffy Jr., FLMI Senior Vice President, Operations Tracy W. Knapp Senior Vice President, Finance Kansas City Life Insurance Company Old American Insurance Company Sunset Life Insurance Company of America Sunset Financial Services Inc. Home Office 3520 Broadway Kansas City, MO 64111 Phone: 816-753-7000 Visit us on the Internet: www.kclife.com www.oaic.com www.sunsetlife.com www.sunsetfinancial.com Donald E. Krebs, MSM, CLU, ChFC Senior Vice President, Sales and Marketing Mark A. Milton, FSA, CERA, MAAA Senior Vice President and Actuary Senior Officers William A. Schalekamp, JD, CLU, FLMI Senior Vice President, General Counsel and Secretary 11 Board of Directors – Kansas City Life Insurance Company Kevin G. Barth President and Chief Operating Officer Commerce Bank Kansas City, Missouri R. Philip Bixby President, Chief Executive Officer and Chairman of the Board Kansas City Life Insurance Company Kansas City, Missouri Walter E. Bixby, LLIF Vice Chairman of the Board Kansas City Life Insurance Company President Old American Insurance Company Kansas City, Missouri William R. Blessing Retired Senior Vice President, Corporate Strategy and Development Embarq Overland Park, Kansas Michael Braude Retired President and Chief Executive Officer Kansas City Board of Trade Kansas City, Missouri Tracy W. Knapp Senior Vice President, Finance Kansas City Life Insurance Company Kansas City, Missouri John C. Cozad President Cozad Company, LLC Platte City, Missouri Cecil R. Miller, CPA Retired Partner KPMG LLP Kansas City, Missouri Richard L. Finn Retired Senior Vice President, Finance Kansas City Life Insurance Company Kansas City, Missouri Bradford T. Nordholm Chief Executive Officer Starwood Energy Group Global, LLC Greenwich, Connecticut Nancy Bixby Hudson Investor Lander, Wyoming Daryl D. Jensen, MAAA, FLMI Vice President of Finance Western Institutional Review Board Olympia, Washington Retired President and Vice Chairman of the Board Sunset Life Insurance Company of America Kansas City, Missouri William A. Schalekamp, JD, CLU, FLMI Senior Vice President, General Counsel and Secretary Kansas City Life Insurance Company Kansas City, Missouri E. Larry Winn Jr. Retired Member of Congress Kansas, Third Congressional District Prairie Village, Kansas 1974 W.E. Bixby 1939 – 1964 1980 W.E. “Walt” Bixby 1990 – 1998 Senior Officers Kansas City Life Insurance Company R. Philip Bixby President, Chief Executive Officer and Chairman of the Board 1895 1900 Richard D. Ropp, FLMI, ACS Vice President, Customer Services Bruce G. Olberding Vice President, Broker Dealer President, Sunset Financial Services Walter E. Bixby, LLIF Vice Chairman of the Board Kansas City Life Insurance Company President Old American Insurance Company Charles R. Duffy Jr., FLMI Senior Vice President, Operations Tracy W. Knapp Senior Vice President, Finance J. Todd Salash Vice President, Computer Information Services Dan L. Schick, CPA, CLU, FLMI Vice President and Auditor Jeffrey M. Seeman Vice President, Group Donald E. Krebs, MSM, CLU, ChFC Senior Vice President, Sales and Marketing Philip A. Williams, CFA Vice President, Securities Mark A. Milton, FSA, CERA, MAAA Senior Vice President and Actuary William A. Schalekamp, JD, CLU, FLMI Senior Vice President, General Counsel and Secretary Kathleen A. Hunzicker, M.D. Vice President and Medical Director David A. Laird, CPA, FLMI Vice President and Controller Robert J. Milroy Vice President, Underwriting and New Business John L. Nogalski, CPA, FLMI Vice President, Taxes 12 Old American Insurance Company R. Philip Bixby Chairman of the Board Walter E. Bixby, LLIF President John C. Alderton Vice President, Sales Gary K. Hoffman, JD, CLU, FLMI Vice President, Associate General Counsel and Secretary Tracy W. Knapp Chief Financial Officer Robert J. Milroy Vice President, Underwriting and New Business 1920 19 1960 1980 2000 Stephen E. Ropp Vice President, Operation Services David A. Laird, CPA, FLMI Vice President and Controller 1950 Richard D. Ropp, FLMI, ACS Vice President, Customer Services Sunset Life Insurance Company of America R. Philip Bixby President, Chairman of the Board Daryl D. Jensen, MAAA, FLMI Vice Chairman of the Board Donald E. Krebs, MSM, CLU, ChFC Vice President, Sales and Marketing David A. Laird, CPA, FLMI Vice President and Controller Robert J. Milroy Vice President, Insurance Services and Assistant Secretary Mark A. Milton, FSA, CERA, MAAA Vice President and Actuary Richard D. Ropp, FLMI, ACS Vice President, Policy Administration James F. Aldrich, JD, CLU, CPCU, FLMI, HIA Secretary J.R. Bixby 1964 – 1990 R. Philip Bixby 1998 – present Today 1924 1904 Major William Warner 1895 – 1899 J.B. Reynolds 1904 – 1937 1895 1900 1920 1940 H.S. Halbert 1899 – 1904 D.T. Torrens 1937 – 1939 1920s STOCKHOLDER INFORMATION CORPORATE HEADQUARTERS Kansas City Life Insurance Company 3520 Broadway Post Office Box 219139 Kansas City, MO 64121-9139 Telephone: 816-753-7000 Fax: 816-753-4902 Internet: http://www.kclife.com E-mail: kclife@kclife.com NOTICE OF ANNUAL MEETING The annual meeting of stockholders will be held at 9 a.m. Central Time on Thursday, April 23, 2009, at Kansas City Life's corporate headquarters. TRANSFER AGENT Cheryl Keefer, Assistant Secretary Kansas City Life Insurance Company Post Office Box 219139 Kansas City, MO 64121-9139 10-K REQUEST Stockholders may request a free copy of Kansas City Life's Form 10-K, as filed with the Securities and Exchange Commission, by writing to Secretary, Kansas City Life Insurance Company. SECURITY HOLDERS As of January 31, 2009, Kansas City Life had approximately 2,500 security holders, including individual participants in security position listings. 1960 1980 2000 STOCK AND DIVIDEND INFORMATION Stock Quotation Symbol NASDAQ – KCLI The following table presents the high and low prices for the Company’s common stock for the periods indicated and the dividends declared per share during such periods. High Low (Per share) Dividend Paid 2008: First quarter Second quarter Third quarter Fourth quarter $ 49.15 52.85 57.93 53.93 $ 39.36 41.51 41.16 33.06 2007: First quarter Second quarter Third quarter Fourth quarter $ 52.28 47.95 50.79 50.48 $ 44.35 44.61 38.18 40.00 $ 0.27 0.27 0.27 0.27 $ 1.08 $ 2.27 0.27 0.27 0.27 $ 3.08 1937 A quarterly dividend of $0.27 per share was paid February 10, 2009. NASDAQ market quotations are compiled according to Company records and may reflect inter-dealer prices, without markup, markdown or commission and may not necessarily represent actual transactions. KANSAS CITY LIFE INSURANCE COMPANY HOME OFFICE: KANSAS CITY, MISSOURI Decades of Dependability KANSAS CITY LIFE INSURANCE COMPANY 2008 Annual Report 

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